Monday, August 26, 2013

The 2010 Patient Protection and Affordable Care Act (ACA, P.L. 111-148, as
amended) requires certain health insurers to provide rebates to their
customers for each year that the insurers do not meet a set financial
target called a medical loss ratio (MLR). At its most basic, an MLR measures the
share of a health care premium dollar spent on medical benefits, as opposed to
company expenses such as overhead or profits. For example, if total
premiums collected are $100,000, and $85,000 is spent on medical care, the
MLR would be 85%. The ACA sets the minimum required MLR at 80% for the
individual and small group markets and at 85% for the large group market. In
general, the higher the MLR, the more value a policyholder receives for his or
her premium payment. Congress imposed the MLR in an effort to provide “greater
transparency and accountability around the expenditures made by health
insurers and to help bring down the cost of health care.” Insurers that
fail to meet these minimum standards must provide rebates to policyholders.

The Department of Health and Human Services (HHS), with input from state
insurance commissioners who are the main regulators of health insurance,
issued rules for implementing the MLR. These rules provided greater
details for calculating the MLR and issuing rebate payments. ACA allows
companies to include quality improvements along with medical benefits when calculating
the MLR. In addition, state and local taxes and some licensing fees are
subtracted (i.e., disregarded) from expenses in the MLR formula. ACA’s
requirements are different from those imposed by state laws, which
generally compare only medical claims to premiums. Though a number of
states have their own MLRs, the ACA is now the minimum standard that must be met
nationwide by certain health insurers. About 8.6 million U.S. consumers were
due more than $500 million in ACA MLR rebate payments by August 2013, for
an average award of $98 per qualifying household. Employers or insurers
can provide the rebates, which are based on activity in 2012, via a check,
an electronic deposit in a bank account, a reduction in insurance premiums, or
by spending the funds for the benefit of employees.

The MLR is based on the aggregate performance of a health plan, not on
individual policy history. Even if a beneficiary had no medical claims
during a given year, he or she would not receive a rebate if the broader
plan met the MLR requirements. In addition, many Americans were enrolled
in health plans that were not covered by the ACA MLR provisions in 2012. The ACA
MLR provisions cover only fully funded health plans, which are plans where
insurance companies assume the full risk for medical expenses incurred.
The requirements do not extend to self-funded plans, which are health care
plans offered by businesses in which the employer assumes the risk for, and
pays for, medical care. Non-profit insurers and some Medicare Advantage
plans were not covered by the ACA MLR standards during the first two years the
law was in effect, though these insurers will be subject to MLR provisions
in 2014. In addition, some states won special exceptions for individual
insurance policies, based on an HHS determination that meeting the MLR
requirement would harm a state’s insurance market.

Several issues have been raised about the MLR provisions since the ACA was
enacted. These include considerations regarding the treatment of insurance
agent and broker bonuses and commissions, and the impact of the MLR on
insurers that provide high deductible plans.

Date of Report: August 9, 2013
Number of Pages: 33Order Number: R42735Price: $29.95

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